case study of government budget class 12

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Class 12 Economics Case Study Questions

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In this article, we will discuss how to download CBSE class 12 Economics Case Study Questions from the myCBSEguide App and our Student Dashboard for free. For the students appearing for class 12 board exams from the commerce/ humanities stream, Economics is a very lucrative and important subject. It is a very high-scoring subject that aids the students to increase their percentile and excel in academics.

The exam is divided into 2 parts:

• Macro Economics
• Indian Economics Development

12 Economics Case Study Questions

CBSE introduced case-based questions for class 12 in the year 2021-22 to enhance critical thinking in students. CBSE introduced a few changes in the question paper pattern to enhance and develop analytical and reasoning skills among students. Sanyam Bharadwaj, controller of examinations, CBSE quoted that the case-based questions would be based on real-life situations encountered by students.

The purpose was to drift from rote learning to competency and situation-based learning. He emphasized the fact that it was the need of the hour to move away from the old system and formulate new policies to enhance the critical reasoning skills of students. Introducing case study questions was a step toward achieving the goals of the National Education Policy (NEP) 2020.

What is a Case Study Question?

As part of these questions, the students would be provided with a comprehensive passage, based on which analytical questions will have to be solved by them. The students will have to read the given passage thoroughly before attempting the questions. In The current examination cycle (2021-22), case-based questions have a weightage of around 20%.

Types of Case Study Questions in Economics

CBSE plans to increase the weightage of such questions in the following years, so as to enhance the intellectual and analytical abilities of the students. Case-based questions are predominantly of 3 types namely:

• Inferential

Local questions

Local questions can be easily solved as the answers are there in the given passage itself.

Global Questions

For Global questions, the students will have to read the passage in depth, analyze it and then solve it.

Inferential questions

Inferential questions are the ones that would require the student to have complete knowledge of the topic and could be answered by application of the concepts. The answers to such questions are tricky and not visible in the given passage, though the passage would highlight the concept on which the questions would be asked by CBSE.

HOTS Questions in Class 12 Economics

Personally, the concept of case-based questions is not new since CBSE has always included questions based on Higher Order Thinking Skills (HOTs). Though now we will have an increased percentage of such questions in the question paper.

Advantages of Case-based Questions

Class 12 Economics has two books and CBSE can ask Case study questions from any of them. Students must prepare themselves for both the books. They must practice class 12 Economics case-based questions as much as possible.

Case study questions:

• Enhance the intellectual and analytical abilities of the students.
• Provide a complete and deeper understanding of the subject.
• Inculcate intellectual reasoning and scientific temperamental in students.
• Help students retain knowledge for a longer time.
• Would definitely help to discard the concept of memorizing insanely and cramming without a factual understanding of the content.
• The questions would help to terminate the existing system of education in India that promotes rote learning.

Sample case study questions (Economics) class 12

Here are some case study questions for CBSE class 12 Economics. If you wish to get more case study questions and other related study material, download the myCBSEguide App now. You can also access it through our Student Dashboard.

Case Study 1

Keeping in view the continuing hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, the Reserve Bank of India has extended the relaxation of the minimum daily maintenance of the CRR of 80% for up to September 25, 2020. Currently, CRR is 3% and SLR is 18.50%.

“As announced in the Statement of Development and Regulatory Policies of March 27, 2020, the minimum daily maintenance of CRR was reduced from 90% of the prescribed CRR to 80% effective the fortnight beginning March 28, 2020 till June 26, 2020, that has now been extended up to September 25, 2020,” said the RBI.

Q.1 The full forms of CRR and SLR are:

• Current Reserve Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Legal Reserves
• Current Required Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Liquidity Ratio (ans)

Q.2 What will be the value of the money multiplier?

• None of these

Q.3 SLR implies:

• a) Certain percentage of the total banks’ deposits has to be kept in the current account with RBI
• b) Certain percentage of net total demand and time deposits have to be kept by the bank themselves (ans)
• c) Certain percentage of net demand deposits has to be kept by the banks with RBI
• d) None of the above

Q.4 Decrease in CRR will lead to __.

• a) fall in aggregate demand in the economy
• b) rise in aggregate demand in the economy (ans)
• c) no change in aggregate demand in the economy
• d) fall in the general price level in the economy

Case Study 2

An important lesson that the COVID-19 pandemic has taught the policymakers in India is to provide greater impetus to sectors that make better allocation of resources and reduce income inequalities. COVID-19 has also taught a lesson that in crisis the population returns to rely on the farm sector. India has a large arable land, but the farm sector has its own structural problems. However, directly or indirectly, 50 percent of the households still depend on the farm sector. Greater support to MSMEs, higher public expenditure on health and education and making the labour force a formal employee in the economy are some of the milestones that the nation has to achieve.

One of the imminent reforms to be done in the country is labour reforms. Labour laws are outmoded in India, and some of these date back to the last century.

India’s complex labour laws have been blamed for keeping manufacturing businesses small and hindering job creation. Industry hires labour informally because of complex laws and that is responsible for low wages.

• Which types of structural problems are faced by the agricultural sector?
• “It is necessary to create employment in the formal sector rather than in the informal sector.’’ Defend or refute the given statement with valid argument.
• Hired labour comes in …………………. (Informal organisation / formal organisation)
• What do you mean by MSMEs?

Case Study 3

People spend to acquire information relating to the labour market and other markets like education and health. This information is necessary to make decisions w.r.t investment in human capital and its efficient utilization. Thus, expenditure incurred for acquiring information relating to the labour market and other markets is also a source of human capital formation.

Q1. Which of the following is the source of human capital formation in India?

• Acquiring information
• All of these (ans)

Q2. Education provides

• Private benefit
• Social benefit
• Both 1) and 2) (ans)

Q3. __ persons contribute more to the growth of an economy.

Q4. Training given by a company to its employees is generally__________

• Investment (ans)
• Social wastage
• Both 1) and 2)

Tips to Solve Case Study Questions in Economics

Let’s understand how you can solve case study questions in class 12 Economics. The two books are Macroeconomics and Indian Economic Development.

• Read the passage thoroughly
• Can follow a reversal pattern, especially macroeconomics questions, i.e. read questions first and then look for the answers in the passage.
• In case the question asked is about Indian Economic Development, read the passage very carefully as most of the answers would be hidden in the passage itself.
• Macro Economics questions will be more application-based and would test your conceptual clarity.
• Answer briefly and precisely.

Important Chapters – Economics Case Study Questions

Following are some of the very important topics that need to be prepared very thoroughly under CBSE class 12 Economics. We expect that CBSE will certainly ask case-based questions from these chapters.

• National income and its aggregates
• Government budget
• Current challenges faced by the Indian economy

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NCERT Solutions for Class 12 Macro Economics Chapter 5 Government Budget and the Economy

NCERT Solutions for Class 12 Economics Chapter 5 Government Budget and the Economy – Macroeconomics designed and developed for session 2024-25023. Along with the solutions, student can get here class 12 Macroeconomics chapter 5 MCQ, Case Studies and extra question answers.

Class 12 Macroeconomics Chapter 5 Macroeconomics Government Budget and the Economy Question answers

• Class 12 Macroeconomics Chapter 5 Solutions
• Class 12 Macroeconomics Chapter 5 MCQ
• Class 12 Macroeconomics Chapter 5 Case Studies
• Class 12 Macroeconomics NCERT Books PDF
• Class 12 Economics all Chapters Solutions
• Class 12 all Subjects NCERT Solutions

There is a constitutional demand in Republic of India to present before the Parliament, an announcement of calculable receipts and expenditure of the govt in respect of each financial year which runs from 1st April to 31st March. This ‘Annual Financial Statement’ represent the primary budget document of the govt. The govt plays an awfully vital role in increasing the welfare of the people. Government provides certain goods and services that can’t be provided by the market mechanism, i.e.; by exchange between individual shoppers and producers.

Example of such merchandise are national defence, roads, government administration, etc., that are noted as public goods. To grasp why public merchandise, got to be provided by the govt, we must understand the difference between non-public merchandises such as garments, cars, food items, etc. and public merchandise. The benefit of public goods is available to all and not restricted to one particular user. Think about a public park or measures to scale back pollution, the advantages are obtainable to all or any. Just in case of personal merchandise, anyone who does not pay to obtain the product, can be excluded from enjoying its advantages. Like, if you don’t buy a ticket of the movie, you may not be allowed to enter the cinema hall.

However, in case of public merchandise, there is no possible approach of excluding anyone from enjoying the advantages of the product. That is why public merchandise is known as non-excludable. Even if some users do not pay, it’s tough and typically not possible to gather fees for the general public merchandise. These non-paying users are known as ‘free-riders’. There is, however, a distinction between public provision and public production. Public provision implies that they’re finances through the budget and may be used with none direct payment. Public merchandise could also be created by the govt or the non-public sector. When goods are created directly by the govt, it is known as public production.

Revenue receipts : These receipts are those receipts that don’t lead result in a claim on the govt. They’re thus termed non-redeemable. They’re divided into tax and non-tax revenues. Taxation, a vital element of revenue receipts, have for long been divided into direct taxes and companies, and indirect taxes like excise taxes, custom duties and service taxes. Alternative direct taxes like wealth tax, gift tax and state duty haven’t brought in a great deal of revenue and therefore are remarked as paper taxes. The distribution objective is wanted to be achieved through progressive financial gain taxation, within which higher the financial gain, higher is that the rate. Companies are taxed on a proportional basis, wherever the rate could be an explicit proportion of the profits.

With respect to excise taxes, requirements of life are exempted or taxed at low rates, comforts and semi-luxuries are moderately taxed and luxuries, tobacco and fossil fuel merchandise are taxed heavily. Non-tax revenue of the central government primarily consists of interest receipts on account of loans by the central government, dividends and profits on investments created by the govt, fees and alternative receipts for services rendered by the govt. Money grant-in-aid from foreign countries and international organisations are enclosed. The estimate of revenue receipts takes into accounts the consequences of tax proposal created within the finance bill.

Capital receipts The govt additionally receives cash by means of loans or from the sale of its assets. Loans can need to be returned to the agencies from that they have been borrowed. Thus, they produce liability. Sale of presidency assets, like sale of shares in Public Sector Undertakings, that is remarked as PSU withdrawal, cut back the whole quantity of monetary assets of the govt. All those receipts of the govt that produce liability or cut back monetary assets are termed as capital receipts.

Revenue expenditure : It is an expenditure incurred for purposes other than the creation of physical or financial assets of the central govt. It relates to those expenses incurred for the normal functioning of the govt departments and various services, interest payment on debt incurred by the govt, and grants given to state govt and other parties. Budget documents classify total expenditure into planned and non-planned expenditure. By this classification, planned revenue expenditure relates to the central plans and central assistance for state and union territory plans.

Non-plan expenditure, covers a vast range of general, economic and social services of the govt. The main items of non-plan expenditure are interest payments, defence services, subsidies, salaries and pensions. Interest payments on market loan, external loans and from various reserve funds constitute the single largest component of non-plan revenue expenditure. Defence expenditure, is committed expenditure in the sense that given the national security concerns, there exists little scope for drastic reduction. Subsidies are an important policy instrument which aims at increasing welfare. Apart from providing implicit subsidies through under-pricing of public goods and services like education and health, the government also extends subsidy explicitly on items such as exports, interest on loans, food and fertilisers.

Capital expenditure There are expenditure of the govt which result in creation of physical or financial assets or reduction in financial liabilities. This includes expenditure on the acquisition of land, building, machinery, equipment, investment in shares, and loan and advances by the central govt to state and union territory govts, PSUs and other parties. Capital expenditures are also categorised as plan and non-plan in the budget documents. Plan capital expenditure, like its revenue counterpart, relates to central plan and central assistance for states and union territory plans. Non-plan capital expenditure covers various general, social and economic services provided by the govt.

What are the important topics of class 12 Macroeconomics chapter 5?

Class 12 Macroeconomics chapter 5 carries 6 marks according to CBSE board- split into two sub topics namely Foreign exchange and balance of payment. There are three systems of Foreign exchange determination. India follows the managed floating system. We study the merits and demerits of the fixed exchange system and the flexible exchange system. We try to understand what determines the demand and supply of foreign exchange in a flexible exchange rate system, We can also understand and appreciate the benefits/consequences of devaluation/ depreciation of currency. In the topic Balance of Payment (which is the concluding chapter of macroeconomics), we study the components of BOP namely the current account and the capital account. The current account deficit (CAD) can and does have adverse consequences on the overall BOP possession and foreign exchange rate (particularly the US Dollar). Numerical on calculation on BOT, current account deficit, devaluation of currency can also be asked in the Board examination- though the marks allotted would be 1 or 2. Students should note that these two sub-topics namely Balance of Payment and Foreign exchange are interrelated. Any deficit in BOP affects the foreign exchange rate adversely. Hence, these two have been combined into one unit.

What are the main concepts to prepare 12th Macroeconomics chapter 5?

The important concepts in the topic determination of foreign exchange are- Foreign exchange rate, Foreign exchange market, Devaluation, Depreciation, Revaluation and Appreciation of currency, Speculation, demand for foreign currency and supply of foreign currency. The important concepts in BOP are current account, Capital account, BOT, Autonomous items, accommodating items, disequilibrium in BOP, surplus or deficiting BOP, visible and invisible items in current account, Unilateral transfers.

Which questions, in chapter 5 of 12th Economics, are considered as most important for examination perspective?

• Discuss the concepts of: (2 marks each) (a) Fixed exchange rate system (b) Flexible exchange rate system (c) Managed floating rate system.
• Discuss the major reasons for demand (outflow) and supply (inflow) of foreign exchange. (4 marks)
• Distinguish between: (2- 3 marks each) (a) Devaluation and depreciation of domestic currency (b) Revaluation and Appreciation of Domestic Currency.
• What is the meaning of balance of payments? State its main components (3 marks)
• Distinguish between Autonomous items and Accommodating items. (3 marks)
• What is meant by deficit in balance of payments? How is it corrected? (3 marks)

What are the main Abbreviations in class 12 Macroeconomics chapter 5 to learn?

• BOP = Balance of payment
• BOT = Balance of trade
• CAD = Current account deficit
• NRI = Non – resident Indian
• CAS = Current account Surplus
• TCS = Tata consultancy services
• MNC = Multi-national corporations

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• Economics /

Government Budget And The Economy Class 12

• Updated on  
• Mar 19, 2021

Every new year, the whole country eagerly waits for the new fiscal or the nation’s budget that the government presents in the parliament. Almost every news channel covers and telecasts this important day before the country. Class 12 Macroeconomics covers many such new topics that we have never discussed before in earlier classes. The chapter of Government Budget and the Economic is one such chapter that will make you understand the importance and need of government budget. It is an important part of class 12 economics . This blog will cover the study notes on the chapter Government Budget and the economy class 12. 

This Blog Includes:

What is the government budget , objectives of the government budget, components of government budget , budget receipts , revenue receipts vs capital receipts , tax revenues vs non-tax revenues , budget expenditure , plan expenditure vs non-plan expenditure, types of budget, implications of revenue deficits and fiscal deficits, measures to reduce or correct different deficits.

According to the chapter government budget and the economy class 12, the government budget is basically an annual final statement which shows item wise expenditures of the government or a ruling entity during a fiscal year. It also presents the anticipated tax revenues and proposed spending or expenditures in areas like Healthcare, Defence, Education, Infrastructure, Banks, State Benefits, etc. The fiscal year is taken into account from 1st April to 31st March. 

As per the chapter on Government Budget and the Economy class 12, the main purpose or the main objectives of the government budget is as follows:

• Reallocation of resources 
• Redistribution of activities 
• Stabilizing economic activities 
• Management of public enterprises 
• Economic growth 
• Generation of employment 

According to Government Budget and the Economy class 12, there are 2 components of the budget. These are:

• Revenue Receipts 
• Revenue Expenditure 
• Capital Receipts 
• Capital Expenditure 

According to the chapter government budget and the economy class 12, the budget receipts refer to the estimated receipts/revenue or money receipts that the government may earn from all the sources during a fiscal year. Receipts can be of 2 types, i.e. revenue receipts and capital receipts. 

Government budget and the economy class 12 chapter gives the various differences between revenue receipts and capital receipts. They are tabulated below: 

As we have discussed above in this blog of Government Budget and the Economy class 12 study notes, the revenue receipts are divided into 2 categories which are tax revenue receipts and non-tax revenue receipts. The tax revenue receipts can further be divided into 2 categories:

• Direct taxes 
• Indirect taxes 

On the other hand, the non-tax revenues, which is the second type of revenue receipts which government may receive from all other sources other than taxes are:

• Commercial Revenue
• Dividends and Profits
• External Grants
• Administrative Revenues
• License Fee
• Fines and/or Penalties
• Cash grants-in-aid from foreign countries and international organisations or the World Bank

The second component of the government budget is, of course, the government budget expenditure. As we have discussed above, these are of two types, the revenue expenditure and the capital expenditure. Let us understand the difference between these two according to Government Budget and the Economy class 12. 

According to the chapter on Government Budget and the Economy class 12, expenditures can be of 2 types:

• Plan expenditures : all those expenditures of the government that are to be incurred during the fiscal or the financial year on things like development and investment programs are termed as plan expenditures. 
• Non-plan expenditures : all those expenditures of the government that are not included in the current five year plan are termed as non-plan expenditures. 

According to the chapter on Government Budget and the Economy class 12, we can bifurcate the government budget into 3 major types:

• Balanced Budget: when estimated receipts are equal to the government estimated expenditures. 
• Surplus Budget: when government estimated receipts are shown more than the government estimated expenditures.
• Deficit Budget: when government estimated receipts are shown less than the government estimated expenditures. This implies an increase in the government liabilities and fall in the reserves. 

Deficit can be of 3 types:

• Revenue Deficit: Total Revenue Expenditure – Total Revenue Receipts
• Fiscal Deficit: Total Budget Expenditure – Total Budget Receipts excluding borrowings

Fiscal Deficit = Borrowings

• Primary Deficit: Fiscal Deficit Interest Payment

Moving further in the government budget and the economy class 12, it mentions the implications of revenue deficits and fiscal deficit. They are tabulated below.

As per the chapter on Government Budget and the Economy class 12, the measures that can be adopted to reduce or correct different deficits in the economy are:

• Borrowing from international monetary institution and other countries
• Lowering government expenditure
• Increasing government revenue
• Monetary expansion
• deficit financing
• Borrowing from public
• Disinvestment

So we end this blog on Government Budget and the Economy class 12 chapter of macroeconomics hoping that this may prove to be helpful for that last moment revision for your exams. If you want to study abroad after 12th commerce or want to know more about the courses after 12th commerce , reach out to our experts at Leverage Edu . Sign up for a free session today! 

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• Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)
• Revision Notes

Revision Notes for CBSE Class 12 Macro Economics Chapter 5 - Free PDF Download

Class 12 Economics Chapter 5 Notes have been prepared by the experts at Vedantu to help the students revise the concepts of the chapter thoroughly before the exams. The experts have used their experience and specialized knowledge to summarise the important concepts of the chapter in a methodical manner. It is very important for students in Class 12 to be clear with the fundamentals of economics as these are used as the base for specialized topics in economics in higher classes. Economics Class 12 Chapter 5 The Government - Functions and Scope is an important chapter and helps the students in learning about the budget.

Download CBSE Class 12 Macro Economics Revision Notes 2024-25 PDF

Also, check CBSE Class 12 Macro Economics revision notes for all chapters:

Related Chapters

Access Class 12 Macroeconomics Chapter 5 - Government Budget and the Economy

Budget: A budget is a year-long financial report that explains how future revenue and expenditure will be calculated item-wise. The budget details a country's revenue and expenditures.

The Main Objectives of the Budget are:

Resource reallocation.

Income and wealth redistribution

Public-sector management

Economic Stability

Economic Development

Employment Creation

Two Components of Budget:

1. Revenue budget: The revenue budget is made up of the government of India's revenue receipts and the expenditures that are met with that revenue.

2. Capital budget: Capital receipts and payments are included in the capital budget. It also includes transactions from the Public Account.

Budget Receipts

1. Revenue Receipts: Revenue receipts are those that do not result in a liability or a decrease in assets. The revenue is then split into two categories.

Receipt from tax

a. Direct tax: A taxpayer pays direct taxes in full to the government. It is also characterised as a tax in which the individual bears both the duty and the burden of payment. According to the type of tax charged, both the central government and state governments collect direct taxes.

b. Indirect tax: The end-consumer of products and services is ultimately responsible for indirect taxes. It is impossible to avoid because taxes are levied on both products and services. It entails lower administrative costs as a result of convenient and regular collections.

Receipt from non-tax: These include interest, commercial revenue, external grants, fines, penalties, and so on.

2. Capital Receipts: Capital receipts are government receipts that create liability or deplete financial assets. The main sources of capital receipts are loans from the public, also known as market borrowings, as well as borrowings from the Reserve Bank, commercial banks, and some other financial institutions through the sale of treasury bills, borrowings from foreign governments and international organizations, and loan recoveries. Small savings, provident funds, and net receipts from the sale of shares in Public Sector Undertakings are among the other items (PSUs).

Budget Expenditure

1. Revenue expenditure: The nature of revenue expenditure is generally current or short-term. They are costs that the government must incur to carry out its daily operations. These costs are fully charged in the year they are incurred and are not depreciated over time. They might either be recurring or non-recurring.

2. Capital Expenditure: Capital expenditures are one-time investments of money or capital made by a government for the aim of expanding in various sectors and businesses in order to create profits. These funds are typically used to acquire fixed assets or assets with a longer lifespan. These include machinery, manufacturing equipment, and infrastructure-improvement equipment. These assets provide value to the government during their entire lifespan and may or may not have a salvage value.

Budget Deficit: The amount by which a budget's expenditures exceed its revenue is referred to as a budget deficit. This deficit is a good indicator of the economy's financial health.

Revenue deficit: Revenue deficit is defined as the difference between total revenue collected and total revenue expenditure. Only current income and current expenses are included in this deficit. A large deficit figure implies that the government should reduce its spending. The government may be able to boost revenue by raising tax revenue.

Revenue deficit = Total revenue expenditure – Total revenue receipts

Implications of Revenue Deficit are:

A significant revenue shortfall indicates budgetary indiscipline.

It indicates that the government is dissaving, i.e., the government is utilizing savings from other sectors of the economy to pay its consumer expenditure.

It demonstrates the government's excessive expenditures on administration. 

It lowers the government's assets owing to disinvestment. 

 A significant revenue deficit sends a warning signal to the government to either cut spending or boost revenue.

Fiscal Deficit: A fiscal deficit occurs when the government's total expenditures exceed its entire revenue produced. The government's borrowings, however, are not included.

Fiscal deficit = Total expenditure – Total receipts excluding borrowings

Implications of Fiscal Deficits are:

A significant drawback or consequence of fiscal deficit is that it may result in a debt trap.

It causes inflationary pressures.

It stifles future advancement.

It increases reliance on foreign resources.

It raises the government's obligation.

Primary Deficit: It is derived by subtracting interest payments from the fiscal deficit.

Primary deficit = Fiscal deficit – Interest payments on previous loans

Implications of Primary Deficit:

It reflects how much of the government's borrowings will be used to cover costs other than interest payments.

Measures to Correct Different Deficits: 

Government subsidy cuts will aid in reducing the deficit.

Where assets are not being used efficiently, disinvestment should be carried out.

Increased emphasis on tax-based revenues, as well as necessary steps to prevent tax evasion.

Borrowing from both domestic and international sources.

A broader tax base could also aid in the reduction of the government's deficit.

Fiscal Policy: Keynesian economics, a theory developed by economist John Maynard Keynes, serves as the foundation for fiscal policy. It is the system by which a government makes changes to its planned expenditure and tax rates in order to monitor and influence the performance of a country's economy. It is implemented in tandem with monetary policy, by which the central bank of the country impacts the country's money supply. This policy influence aids in containing inflation, increasing employment, and, most significantly, maintaining a healthy currency value.

Debt: A quantity of the money borrowed by one entity, the borrower, from another entity, the lenders, is referred to as debt. Governments borrow money to cover their deficits, which allows them to fund regular operations as well as large capital expenditures. This debt might be in the form of a loan or bond issuance. 

Class 12 Macroeconomics Chapter 5 Notes PDF

Class 12 Macroeconomics Chapter 5 Notes will also help the students in framing their answers in the question paper. Most of the time, a concept is explained in detail in the chapter but the same matter cannot be reproduced in the exam as it is difficult to learn and can make the answer unnecessary lengthy. With the help of these revision notes, students can write to the point answers, covering the appropriate matter. Chapter 5 Economy Class 12 Notes PDF by Vedantu can also be accessed by the students online from anywhere, anytime.

Chapter 5 Macroeconomics Class 12 Notes cover all the aspects of the budget, starting from the objectives of the budget and its components. The budget can be classified into revenue budget and capital budget. While the revenue budget consists of the revenue receipts and expenditure met from this revenue, the capital budget includes capital receipts and expenditure.

Budget receipts can be sub-classified into revenue and capital receipts and revenue receipts can be further subdivided into tax and non-tax receipts. These notes will provide ample examples of each category so that the students can understand the concept well. Concepts of receipts and expenditure have been covered well in these notes, complete with examples and the importance of each.

Expenditure and Deficit

Just like receipts, expenditure can also be divided into revenue and capital expenditure. When students are learning about the budget, another important concept that warrants time and attention is the topic of the budget deficit. Economics Chapter 5 Class 12 Notes elaborates on this topic by giving the meaning of deficit and ways to calculate it. In simple words, when the expenditure exceeds the revenues, it leads to a deficit. When revenue expenditure exceeds the revenue receipts, it leads to a revenue deficit. When the total expenditure exceeds the total revenues, it leads to a fiscal deficit.

There are implications of a deficit on the economy and by going through these revision notes students can learn them easily as they have been stated in an easy-to-learn format. There are several measures to correct a budgetary deficit which include steps like borrowing from the public, disinvestment among others that have been included in the notes. The easy pointers can be retained by the students and can be elaborated upon in the exam.

By going through the revision notes students can understand the concept of the budget and its components. They will learn about the effects of receipts exceeding expenditure and vice versa. Students often find it difficult to gauge the importance of every concept given in the chapter and the weightage it might carry in the exam. CBSE Class 12 Macroeconomics Chapter wise Notes by Vedantu highlight all the key concepts that students must revise before the exam. This way students can utilize their time wisely.

Conclusion  

The availability of free PDF download notes for CBSE Class 12 Macroeconomics Chapter 5 - "Government Budget and the Economy" is an invaluable resource for students. These notes provide a structured and comprehensive overview of the intricate relationship between government budgets and economic stability. Understanding this topic is not only crucial for academic excellence but also for comprehending the broader economic landscape. These notes simplify complex concepts like fiscal policy, government revenue, and expenditure, making it easier for students to grasp and apply these principles. Ultimately, these downloadable notes empower students to understand the vital role of government budgets in shaping an economy, promoting fiscal responsibility and informed citizenship.

FAQs on Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)

1. What is the Difference Between Direct Taxes and Indirect Taxes?

Macroeconomics Class 12 Chapter 5 Notes explain the difference between direct and indirect taxes with the help of examples. Taxes form an important part of the revenue for the government. Direct taxes are the taxes of which the burden cannot be shifted to others. The Impact and incidence of these taxes are on the same person, eg wealth tax. Indirect taxes are the taxes for which the burden can be shifted to others. The impact and incidence of these taxes fall on different people, eg, service tax. Students can refer to the government budget and the economy class 12 notes to understand this difference clearly.

2. How do These Revision Notes Help the Students in Preparing for the Exams?

Budget is an important concept in economics and understanding all its components is vital for students to grasp further knowledge on this topic. The revision notes have been curated by the experts after a careful and thorough study of the chapters. The notes have been prepared, keeping in mind the concepts on which questions are based. The explanations for every concept have been given in a format that can be formulated into answers by the students. Each topic is followed by examples, and equations to help the students revise easily.

3. What is a government budget Class 12?

A government budget is a country's document or yearly financial statement that shows estimated revenue and expenditure of one by one every item during the course of that year. This government budget is presented on the budget day in Lok Sabha. In India, the financial year begins on April 1st and ends on March 31st of the following year. The government develops a budget based on its goals, and then begins to collect the resources and finances needed to complete the investment.

4. What are the objectives of the government budget 12th?

Savings and investments are essential to a nation's overall economic prosperity. As a result, budgetary measures are implemented in order to ensure that different governmental sectors have enough resources. Economic savings and investments are boosted by the government. A number of government-sponsored budgetary programmes are being implemented to close the income gap between the wealthiest and the poor in the country. Financial measures such as subventions or taxes can help attain this goal. It's a top priority for the Budget to reduce the market's pricing fluctuations.

5. How do you measure the government deficit?

There are majorly three ways to measure the government deficit, which are as follows:

Revenue Deficit- The difference between government revenue expenditures and total revenue receipts is known as the revenue deficit.

Fiscal Deficit- It is the difference between government expenses and the total receipts, excluding borrowing, that determines the fiscal deficit.

Primary Deficit- The primary deficit's purpose is to focus on the current fiscal imbalances, which is why it is measured. Basically, it's the budget deficit minus interest payments. 

6. What are the important topics covered in Class 12 Macroeconomics Chapter 5 revision notes?

Vedantu makes sure not to leave a single important topic unnoticed. All the topics are briefly explained in the revision notes provided by Vedantu. Following are the important questions that are covered in Class 12 Macroeconomics Chapter 5 revision notes:

Components of government budget

The revenue account- revenue expenditure and receipts

The capital account- capital expenditure and receipts

Measures of government deficit- revenue, fiscal and primary deficit

Fiscal policy

Changes in government expenditure

Changes in taxes

7. Where can I get the NCERT solutions for Class 12 Macroeconomics Chapter 5 in PDF format?

Vedantu app and Vedantu website both offer the NCERT Solutions for Class 12 Macroeconomics Chapter 5 in PDF format which can be downloaded for free of cost. Every chapter ends with a set of questions which Vedantu answers in-detail in its NCERT Solutions. You can use these solutions to prepare for your exams by going through them and practicing them regularly. It's simple, just visit the page CBSE Class 12 Macro Economics Revision Notes Chapter 5 and you'll be taken to a page with the NCERT Solutions.

REVISION NOTES FOR CLASS 12 MICRO ECONOMICS

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CBSE Class 12 Economics Important Case Study Based Questions for 2023 Board Exams

Cbse class 12 economics important case study based questions: class 12th economics exam is just a few hours away. get important case study questions to practice before cbse class 12 economics board examinations scheduled to be conducted on march 17, 2023. .

Important Case Study Based Questions for CBSE Class 12 Economics Board Exam 2023

Read the following case study paragraph carefully and answer the questions on the basis of the same..

Q1 The central bank of India i.e. Reserve Bank of India, is the apex institution that control the entire financial market. It's one of the major functions is to maintain the reserve of foreign

exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate.

In other words, it is the central bank's job to control a country's economy through monetary policy; if the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all Involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue.

When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices.

Whatever the central bank does or in fact don't do, will affect the currency of that country.

Sometimes, it is within the central bank's interest to purposefully effect the value of a currency.

For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country's commodities will seek cheaper supply; hence directly effecting the economy.

1 Which of the following tools are used by the central bank to control the flow of money in domestic economy?

(a) Fiscal tools (b) Quantitative monetary tools

(c) Qualitative monetary tools (d) Both (b) and (c)

• a) Tighten the money supply in the economy
• b) Ease the money supply in the economy
• c) Allow commercial banks to work under less strict environment
• d) Both (b) and (c)

3 Which of the following steps should be taken by the central bank if there is an excessive rise in the foreign exchange rate?

(a) Supply foreign exchange from its stock

(b) Demand more of other foreign exchange

(c) Not intervene in the market as the exchange rate is determined by the market forces

(d) Help central government to stabilize the foreign exchange rate.

Answer: 

1(d) Both (b) and (c)

2(a) Tighten the money supply in the economy

3(a) Supply foreign exchange from its stock

Q2 Changes in aggregate demand bring about changes in the level of output, employment, income, and price. These changes are generally cyclical in nature. These changes, more generally, follow a cycle of four different stages namely boom, recession, depression and recovery. The cyclical nature of economic activity is known as trade cycle or business cycle. Boom is a stage of economic activity characterized by rising prices, rising employment, rising purchasing power.

• During the time of ‘excess demand’, Govt. should .................. the public expenditure.
• a) Reduce b) increase c) unchanged d) none of these.
• Investment depends on: a) Supply b) income c) saving d) Both (a) and (c)

Answer: Income.

Q3 In the modern world, govt. aims at maximizing the welfare of the people and the country. It

requires various infrastructure and economic welfare activities. These activities require huge govt. spending through appropriate planning and policy. Budget provides a solution to all these concerns. Budget is prepared by the government at all levels.

Estimated expenditure and receipts are planned as per the objectives of the government. In India, budget is prepared by the parliament on such a day as the president may direct. The parliament approves the budget before it can be implemented. The receipts and expenditures as shown in the budget are only the estimated values for the upcoming fiscal year, and not the actual figure.

• a) Reallocation of resources.
• b) Re distribution of income
• c) Reducing expenditure
• d) Economic stability.

Answer: c) Reducing expenditure

Answer: False

Q4 India’s balance of payments position improved dramatically in 2013-14 particularly in the last three quarters. this moved in large part to measure taken by the government and the Reserve Bank of India (RBI) and eat some part to the overall macro-economic slowdown that fed into the external sector. current account deficit (CAD) declined sharply from a record high of U.S. dollar 88.2 billion (4.7% of GDP) in 2012 -1/3 to U.S. dollars 32.4 billion (1.7% of GDP) in 2013 -14. After staying at perilously unsustainable levels off well over 4.0 percentage of GDP in 2011 -12 and 2012 -13, the improvement in BOP position is a welcome relief, and there is need to sustain the position going forward. This is because even as CAD came down, net capital flows moderated sharply from U.S. dollars 92.0 billion in 2012 -13 do U.S. dollar 47.9 billion in 2013-14, that two after a special swap window of

The RBI under the nonresident Indian (NRI) scheme / overseas borrowings of banks alone yielded U.S. dollar 3 4.0 billion. This led to some increase in the level of external debt, but it has remained at the manageable levels. the large depreciation of the rupee during the course of the year, note with standing sizable accretion to reserve in 2013 – 14, could partly be attributed to frictional forces and partly to the role of expectations in the forex market. the rupiah has stabilized the recently, reflecting an overall sense of confidence in the forex market as in the other financial markets of a change for better economic

prospects there is a need to nurture and build upon this optimism through creation of an enabling environment for investment inflows so as to sustain the external position in an as yet uncertain global milieu. --------- The Hindu, archives

• a) credit, capital account
• b) debit, capital account
• c) credit, current account
• d) debit, current account
• a) current account
• b) revenue account
• c) capital account
• d) official reserves
• a) outward flow of foreign exchange
• b) inward flow of foreign exchange
• c) decrease in the level of external debt
• d) decrease in future claims

Answers: 1.b 2. c 3. b 4. d

Q5 The green revolution for the third agricultural revolution is the set of research technology

e-transfer initiatives earring between GNE E and the late 1960 that increased agricultural

production worldwide beginning most markedly in the late 1960 the initiative resulted in

the adoption of new technologies including high yield varieties of CSR rules of cells

especially does wheat and rice it was associated with chemical fertilizers agrochemicals

and controlled water supply and newer methods of cultivation including machine isolation

National bank for agriculture and rural development is and apex development finance

institution fully owned by government of India the bank has been entrusted with Martyrs

concerning policy planning and operations in the field of credit for agriculture and other

economic activities in rural areas in India.

1 Who among the following is known as the father of green revolution

(a) Dr. M S Swaminathan

(b) Dadabhai Naoroji

(c) Vikram Sarabhai

(d) all of these

2 Green revolution is also known as ..................

(a) Golden revolution

(b) milk revolution

(c) Wheat revolution

(d) None of this

3 Which of the following institutions were setup as the apex body in rural areas to support the small farmers in the adoption of modern farming methods?

4 Green revolution was the ............... set of agricultural reforms brought in India

Answer: 1 (a) 2 (c) 3 (d) 4(c)

• Narasimha Rao. This policy opened the door of the India Economy for the global exposure for the first time. In this New Economic Policy P. V. Narasimha Rao governmentreduced the import duties, opened reserved sector for the private players, devalued the Indian currency to increase the export. This is also known as the LPG Model of growth. New Economic Policy refers to economic liberalization or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991. Main Objectives of New Economic Policy – 1991, July 24 The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows:

The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. The NEP intended to bring down the rate of inflation.

1 New Economic Policy of India was launched in the year 1991 under the

• P. V. Narasimha Rao
• Atal Bihari Bajpayi
• Sharad Pawar
• None of these

2 .................................. is also known as the LPG Model of growth. ((choose

the correct alternative)) (New Economic Policy / New Education Policy)

Answer: New Economic Policy

3 State whether the given statement is true or false:

Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. ((choose the correct alternative))

True / False

Answer: True

Q7 Both forms of capital formation are the outcomes of conscious investment decisions. The decision regarding investment in physical capital is taken on the basis of one’s knowledge in this regard. The ownership of physical capital is the outcome of the conscious decision of the owner the physical capital formation is mainly an economic and technical process.

Human capital formation takes place in one’s life when she/he is unable to decide whether it would maximize her/his earnings. Children are given different types of school education and health care facilities by their parents and society. Moreover, the human capital formation at this stage is dependent upon the already formed human capital at the school level. Human capital formation is partly a social process and partly a conscious decision of the possessor of the human capital.

• a) Human capital is intangible whereas physical capital is tangible.
• b) Human capital can cope up with the changing technology whereas physical cannot.
• c) Human capital generates both personal and societal benefits whereas physical capital generates only personal benefit.
• d) Human capital gets obsolete with time whereas physical capital does not.
• In the context of the paragraph, it can be argued that human capital depreciates faster than the physical capital. The given statement is:
• c) Partially true
• d) can’t comment due to lack of proper estimation mechanism
• Machines and industrial tools are examples of _
• a) Physical capital
• b) Human capital
• c) Both physical and human capital
• d) Natural capital
• Investment in education by parents is the same as_______
• a) Investment in intermediate goods by companies
• b) Investment in CSR activity by companies
• c) Investment in capital goods by companies
• d) None of the above

Answer: – c) Investment in capital goods by companies

Q8 The central government will spend Rs. 9800 crores on livestock development over the next five years in a bid to leverage almost Rs. 55000 crore of outside investment into the Animal Husbandry Sector. It would do this by merging a slew of schemes of the Department of Animal Husbandry and Dairying into three main programmes, focused on indigenous cows and dairy development, livestock health and infrastructure development, an official statement said. The Cabinet Committee on Economic Affairs approved the implementation of the special livestock sector package by revising and realigning the various components of the existing schemes in order to boost growth and make animal husbandry more remunerative for the 10 crore farmers engaged in it.

1) Livestock production provides ------------- for the family without disrupting other food producing activities

(a)Increased stability in income 

(b) food security

(c)transport and fuel 

Answer: (d) all of these

2) The central bank undertakes to invest on livestock development in ----------- (horticulture/ animal husbandry) sector

Answer: animal husbandry

3) State one limitation of livestock sector in India

Answer: The livestock productivity is quite low as compared to other countries

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• CBSE Class 12 Macro Economics Chapter 5 – Government Budget and the Economy Class 12 Notes 

Government Budget and the Economy Class 12 Revision Notes

In the government budget and the economy class 12 notes, we will study the concept of public and private goods. Also, we will learn the concept of allocation and distribution function. Then, we will learn the differences between public and private goods. Moving ahead, we will present the components of the government budget to bring out the sources of government revenue and the avenues of government spending. Furthermore, we will discuss the issue of government deficit It is a situation when expenditures exceed revenue collection. Moreover, we will deal with fiscal policy and the multiplier process within the income-expenditure approach. We will study the use of fiscal policy in stabilizing the level of output and employment.

Then, we will study the perspectives on the appropriate amount of Government Debt. Moreover, we will study other perspectives on Deficit and debts. We will understand that Government borrowing to cover deficits leads to debt accumulation – what the government owes.

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Sub-topics under Government Budget and the Economy:

• Revenue Account and Capital Account : In this Sub-topic, we will, at first, study Revenue receipts and Expenditure under Revenue Account. Then we will study Capital Receipts and expenditure Under Capital Account.
• Measures of Government Deficit :  In this Sub-topic, we will study the various measures that capture government deficit. Moreover, we will study their implications for the economy.
• Fiscal Policy : In this Sub-topic, we will study the fiscal policy of the Government. We will study its use in stabilizing the level of output and employment.
• Debt : In this Sub-topic, we will study the perspectives on the appropriate amount of Government Debt. Moreover, we will study other perspectives on Deficit and debts and the concept of debt reduction.

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CBSE Class 12 Macro Economics Revision Notes

• CBSE Class 12 Macro Economics Chapter 4 – Income Determination Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 3 – Money and Banking Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 6 – Open Economy Macroeconomics Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 2 – National Income Accounting Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 1 – Introduction to Macro Economics Class 12 Notes

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Case Study Chapter 5 Government Budget and Economy

Please refer to  Case Study Chapter 5 Government Budget and Economy  with answers provided below. These case study based questions are expected to come in the upcoming Class 12 Economics examinations. We have provided  economics case studies with answers class 12  for all chapters on our website as per the latest examination pattern issued by CBSE, NCERT, and KVS.

Chapter 5 Government Budget and Economy Economics Case study with Answers Class 12

Case Based Questions :

Finance Minister Nirmala Sitharaman has pegged fiscal deficit for the coming year 2021-22 at 6.8% of GDP and aims to bring it back below the 4.5% mark by 2025-26. The original fiscal deficit target for 2020-21 was 3.5%. However, in reality, the deficit shot up to a high of 9.5% of GDP due to the double impact of the COVID-19 pandemic- low revenue flows due to the lockdown and negative economic growth clubbed with the high government spending to provide essential relief to the vulnerable sections of the society, as well as a stimulus package aimed at reviving domestic demand.

Question. Fiscal deficit is financed through:    (a) Borrowings (b) Tax revenue receipts (c) Disinvestment (d) All of the above

Question. If fiscal deficit is ₹4000 crore and interest payments is ₹500 crore, then primary deficit is:  (a) ₹4,500 crore (b) ₹ 3,500 crore (c) ₹ 5,000 crore (d) ₹ 4,200 crore

Question. Deficit budget refers to a situation when:    (a) government’s budget expenditure is less than its budget receipts (b) government’s budget expenditure is more than its budget receipts (c) government’s budget expenditure is equal to its budget receipts (d) government’s budget receipts are more than its budget expenditure

Question. Fiscal deficit is equal to:  (a) Total expenditure -Total receipts other than borrowings (b) Capital expenditure – Capital receipts (c) Revenue expenditure – Revenue receipts (d) Revenue expenditure + Capital expenditure – Revenue receipts

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the budget proposals for this financial year rest on six pillars – health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R &D, and ‘Minimum Government, Maximum Governance’. Significant announcements included a slew of hikes in customs duty to benefit Make in India, proposal to disinvest two more public sector banks (PSBs) and a general insurance company, and numerous infrastructure pledges to poll- bound states.

Question. Which of the following is not an objective of government budget?  (a) Reallocation of resources (b) Increasing regional disparities (c) Economic Stability (d) Economic Growth

Question. In which of the following taxes, the impact and incidence of the tax lies on different person?  (a) Goods and service tax (b) Custom duty (c) Income tax (d) both (a) and (b)

Question. Disinvestment of a general insurance company is an example of:  (a) revenue receipt (b) revenue expenditure (c) capital receipt (d) capital expenditure

Question. Expenditure on infrastructure is a capital expenditure because:  (a) It creates liability of the government (b) It reduces assets of the government (c) It increases assets of the government (d) It neither creates any liability nor reduces any asset of the government

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Government Budget And The Economy Chapter 4 Notes, QnA 2023

Government budget and the economy, government budget – meaning, objectives and components..

A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year.

Just like your household budget, the government also has a budget of its income and expenditure. In the beginning of every year, the government presents before the Lok Sabha an estimate of its receipts and expenditure for the coming financial year.

The government plans a budget according to its expenditure and then tries to raise funds to meet the proposed expenditure. 

Government earns money broadly from taxes, fees and fines, interest on loans given to states and dividends by public sector enterprises. 

Government spends mainly on: Securing and providing goods and services to citizens, On law and order and Internal security, defence, staff salaries, etc. 

In India there is a constitutional requirement to present a budget before Parliament for the ensuing financial year. The financial (fiscal) year starts on April 1 and ends on March 31 of next year. 

General objectives of a government budget are as under:

• To promote rapid and balanced economic growth to improve the living standard of the people.  
• To eradicate poverty and unemployment by creating employment opportunities and providing maximum social benefits to the poor  
• To reduce inequalities of income and wealth, the government can influence distribution of income through levying taxes and granting subsidies.  
• To reallocate resources so as to achieve social and economic objectives. e.g., public sanitation, rural electrification, education, health, etc.  
• To bring economic and price stability, by controlling fluctuations in general price level through taxes, subsidies and expenditure.  
• To finance and manage public enterprises like railways, power generation and water lines etc.

Components And Classification

There are two main components of the Government Budget. 

Revenue Receipts  

Incomes which are received by the government from all sources in its ordinary course of governance are revenue receipts.

Revenue receipts are further classified as tax revenue and non-tax revenue.

• Tax Revenue

Tax revenue is the income received from different taxes and other duties levied by the government. It is a major source of public revenue. 

Taxes are of two types of tax], viz., Direct Taxes and indirect taxes

Direct taxes are taxes that an individual pays directly to the government, such as income tax, land tax, and personal property tax. Such direct taxes are based on the ability of the taxpayer to pay, higher their capability of paying is, the higher their taxes are.

Indirect taxes are those taxes which are levied on goods and services and affect the income of a person through their consumption expenditure. E.g. Custom duties, sales tax, services tax, excise duties, etc. 

• Non-Tax Revenue

Apart from taxes, governments also receive revenue from other non-tax sources.

Fees : Fees paid for registration of property, births, deaths, etc.

Fines and penalties : Fines and penalties for not following (violating) the rules and regulations.

Profits from public sector enterprises : Many enterprises are owned and managed by the government. It is an important source of non-tax revenue. For example in India, the Indian Railways, Oil and Natural Gas Commission, Air India, etc. 

Gifts and grants : Gifts and grants are received by the government. Citizens of the country, foreign governments and international organisations like the UNICEF, UNESCO, etc. donate during times of natural calamities.

Special assessment duty : It is a type of levy imposed on the people for getting some special benefit. For example, in a particular locality, if roads are improved, property prices will rise. 

Capital Receipts 

Receipts which create a liability or result in a reduction in assets are called capital receipts. They are obtained by the government by raising funds through borrowings, recovery of loans and disposing of assets.

Some more examples:

• Loans raised by the government from the public through the sale of bonds and securities. They are called market loans.
• Borrowings by government from RBI and other financial institutions through the sale of Treasury bills.
• Loans and aids received from foreign countries and other international Organisations like International Monetary Fund (IMF), World Bank, etc.
• Receipts from small saving schemes like the National saving scheme, Provident fund, etc.
• Recoveries of loans granted to state and union territory governments and other parties.

Click Below To Learn Other Chapter Notes

• Unit 1: National Income and Related Aggregates
• Unit 2: Money and Banking
• Unit 3: Determination of Income and Employment  
• Unit 5: Balance of Payments
• Unit 6: Development Experience (1947-90) and Economic Reforms since 1991
• Unit 7: Current challenges facing Indian Economy  
• Unit 8: Development Experience of India

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Classification Of Capital Expenditure And Revenue Expenditure 

Capital Expenditure  

Any projected expenditure which is incurred for creating asset for a long life is capital expenditure. 

Therefore, expenditure on land, machines, equipment, irrigation projects, oil exploration and expenditure by way of investment in long term physical or financial assets are capital expenditure.

The following are the examples of capital expenditure :

Expenditure incurred for :

• Acquisition of fixed tangible assets such as land, building, machinery, furniture, motor vehicle etc.  Improvement or extension of fixed assets such as increasing the seating capacity of a theatre. 
• Bring the fixed assets to the place of their use and expenditure incurred on their installation or erection such as freight on fixed assets, wages paid for purchase of intangible assets such as goodwill, patent rights, and trademarks, copyright, etc. 
• Reconditioning of old fixed assets such as expenditure incurred on repairing or overhealing of secondhand machinery. 
• Major repairs and replacement of plants which increase the efficiency of the plant.

Rules for Determining Capital Expenditure.  

An expenditure is capital expenditure:

• When it is incurred for acquiring a long term asset (having a useful life of more than one year) for use in the business to earn revenue and not meant for sale.
• When it is incurred to put an asset into working condition. For example, the transportation and installation charges are added to the cost of machine, the legal charges like registration and stamp duty is added to the cost of land and building, etc.
• When it incurred for putting an old asset into working condition is treated as capital expenditure and added to the cost of the asset.
• When it is incurred to increase the earning capacity of a business is treated as capital expenditure. For example, expenditure incurred for shifting the factory to convenient site is a capital expenditure.

Revenue Expenditure

When an expenditure is made for running the business with a view to produce the profits is revenue expenditure. Such expenditure benefits the current period only. 

It is incurred to maintain the existing earning capacity of the business. Administrative expenses and selling and distribution expenses are examples of revenue expenditure.

Rules for Determining Revenue Expenditure. 

An expenditure incurred: 

• For the purpose of acquiring goods purchased for resale, consumable items, etc. Other direct expenses like production and purchase of goods such as wages, power, freight etc. are revenue expenditure.
• For maintaining fixed assets in working order e.g. amount spent on repairs and renewals
• Depreciation on fixed assets 
• On office and administrative and selling and distribution departments in the normal course of business. These include salaries, rent, telephone expenses, electricity, postage, advertisement, travelling expenses, commission to salesmen.
• On non-operating expenses and losses are revenue expenditures. For example, interest on loan taken after commencement of commercial production, loss on sale of a long term asset, loss by theft, loss by fire are revenue expenditures.
• By an enterprise to discharge itself from recurring liability is of revenue nature. For example, a lump sum amount paid to a pensioner by the employer is revenue expenditure.
• For protecting the business is a revenue expenditure. For example, the amount spent on propaganda campaign to oppose the threatened nationalisation of industry is of revenue nature.
• To maintain the existing efficiency or the earning capacity is of revenue type.

Distinction Between Capital Expenditure and  Revenue Expenditure: 

Measures Of Government Deficit

A Deficit is the budgetary situation where expenditure is higher than the revenue. When in a set budget government expenditure exceeds the income amount it is government deficit.

This deficit indicates the financial health of the economy. To reduce this deficit between expenditures and income, the government cut back certain expenditures and also increased revenue-generating activities.

This expenditure revenue gap may be financed by either printing of currency or through borrowing.

Nowadays most governments in the world are having deficit budgets and these deficits are often financed through borrowing. 

Types Of Government Deficits

• Revenue Deficit
• Fiscal Deficit
• Primary Deficit

Revenue Deficit  

It is the surplus of the government’s revenue expenditure over the revenue receipts.

It is the shortfall between the total revenue received to the total revenue expenditure.

Revenue deficit = Revenue expenditure – Revenue receipts

Revenue deficit only incorporates current income and current expenses. A high degree of deficit symbolises that the government should reduce its expenses. 

The government may raise its revenue receipts by raising income tax. Disinvestment and selling off assets is another corrective measure to minimise a revenue deficit.

Fiscal deficit

It is the distinction between the government’s total expenditure and its total receipts, which excludes borrowing.

Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts)

A fiscal deficit has to be financed by borrowing. Thus, it includes the total borrowing necessities of the government from all the possible sources. From the financing part.

A greater deficit implies more borrowing by the government and the extent of the deficit indicates the amount of expense for which the money is borrowed.

Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad

Fiscal deficit indicates the amount of money that the government will need to borrow during the financial year. 

A disadvantage or implication of fiscal deficit is it may lead to a debt trap or it may lead to unnecessary and wasteful expenditure by the government which may lead to uncontrolled inflation. 

Primary deficit

It is the amount of money that the government requires to borrow from the interest payments on the formerly borrowed loans. 

The aim of quantifying the primary deficit is to concentrate on current fiscal imbalances. 

Gross primary deficit = Gross fiscal deficit – Net interest liabilities

Net interest liabilities comprise interest payments – interest receipts by the government on the net domestic lending.

Difference between Fiscal Deficit and Revenue Deficit

Measures to Reduce Government Deficit

• Increased emphasis on tax-based revenues and appropriate measures to reduce tax evasion.
• Disinvestment should be done where assets are not being used effectively
• Reduction in subsidies by the government will also help reduce the deficit.
• Try to avoid unplanned expenditures.
• Borrowing from domestic sources.
• Borrowing from external sources.
• A broadened tax base 

An uncontrolled government deficit may lead to decline in the financial health of the economy. The agenda of the government should be to plan the revenues and expenditures in such a way that the economy moves towards a balanced budget situation.

Frequently Asked Questions

Q1. What is Government Budget?

Answer : A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year.

Q2. What is revenue receipts?

Answer : Incomes which are received by the government from all sources in its ordinary course of governance are revenue receipts.

Q3. What is Capital receipts?

Answer : Receipts which create a liability or result in a reduction in assets are called capital receipts. They are obtained by the government by raising funds through borrowings, recovery of loans and disposing of assets.

Q4. What is revenue deficit?

Answer : It is the surplus of the government’s revenue expenditure over the revenue receipts. It is the shortfall between the total revenue received to the total revenue expenditure.

Q5. What is Fiscal deficit?

Answer : It is the distinction between the government’s total expenditure and its total receipts, which excludes borrowing.

Q6. What is primary deficit?

Answer : It is the amount of money that the government requires to borrow from the interest payments on the formerly borrowed loans. 

Government Budget and the Economy Unit 4 CBSE, class 12 Economics notes. This cbse Economics class 12 notes has a brief explanation of every topic that NCERT  syllabus has.

You will also get ncert solutions, cbse class 12 Economics sample paper, cbse Economics class 12 previous year paper.

Final Words

From the above article you must have learnt about ncert cbse class 12 Economics notes of unit 4 Government Budget and the Economy. We hope that this crisp and latest Economics class 12 notes will definitely help you in your exam.

• Class 12 Commerce
• Sandeep Garg Textbook Solutions Class 12 Macroeconomics
• Chapter 10 Government Budget And The Economy

Sandeep Garg Macroeconomics Class 12- Chapter 10: Government Budget and the Economy

Sandeep Garg Class 12 Macroeconomics Solutions Chapter 10: Government Budget and the Economy are explained by the expert economics teachers from the latest edition of Sandeep Garg Macroeconomics Class 12 textbook solutions.

At BYJU’S, we provide Sandeep Garg economics class 12 solutions to give a comprehensive insight about the subject to the students. These insights act as a priceless benefit to students while completing their homework or while studying for their exams.

There are numerous concepts in economics, but here we provide you the solutions from, Government Budget and the Economy, which will be useful for the students to score well in the board exams.

Sandeep Garg Solutions Class 12: Chapter 10: Part B

In a government budget, the revenue deficit is ₹35 crores. If the revenue receipts are ₹70 crores and capital expenditure is ₹120 crores, then how much is the revenue expenditure?

Revenue deficit = Revenue expenditure – Revenue receipt

₹35 crores = Revenue expenditure – ₹70 crores

Revenue Expenditure = ₹35 crores + ₹70 crores

= ₹105 crores

The interest requirement as per the government budget during a year is ₹1,40,000 crores. If the total borrowing requirements of the government are estimated at ₹2,70,000 crores, then how much is the primary deficit?

Total borrowing requirements of the government are estimated at ₹2,70,000 crores. It means,

Fiscal deficit = ₹2,70,000

• Primary deficit = Fiscal deficit – Interest payment

Primary deficit = ₹2,70,000 crores – ₹1,40,000 crores

= ₹1,30,000 crores

In a government budget, the primary deficit is ₹12,000 crores and interest payment is ₹7,000 crores. How much is the fiscal deficit?

₹12,000 crores = Fiscal deficit – ₹7,000 crores

Fiscal deficit = ₹12,000 crores + ₹7,000 crores

= ₹19,000 crores

As per the government budget, the interest payments are estimated at ₹10,000 crores, which is 40% of the primary deficit. Calculated the fiscal deficit.

Let primary deficit = x

₹10,000 crores = 40% of x = 0.40 x

x= ₹10,000 crores/0.40 = ₹25,000 crores

₹25,000 crores = Fiscal deficit – ₹10,000 crores

Fiscal deficit = ₹25,000 crores + ₹10,000 crores

= ₹35,000 crores

Explore link: Excess Demand and Deficient Demand

From the given table, Find the following:

(a) Fiscal deficit

(b) Primary deficit

Revenue deficit = ₹70,000 crores – ₹50,000 crores = ₹20,000 crores

Interest payment = 25% of revenue deficit = ₹20,000 crores x 25/100 [1] 

= ₹5,000 crores

• Fiscal deficit = Borrowings = ₹15,000 crores

Primary deficit = ₹15,000 crores – ₹5,000 crores

= ₹10,000 crores

From the given information, determine the following:

(a) Capital expenditure

(b) Total expenditure

(c) Interest payments

(a) Fiscal deficit = Revenue deficit + (Capital expenditure – Non-debt creating capital receipts)

₹12,000 crores = ₹9,000 + (Capital expenditure – ₹10,000

Capital expenditure = ₹12,000 crores – ₹9,000 crores + ₹10,000 crores

= ₹13,000 crores

(b) Total expenditure = Revenue expenditure + Capital expenditure

Revenue expenditure = Revenue deficit + Revenue receipt

= ₹9,000 crores + ₹6,000 crores

= ₹15,000 crores

Total expenditure = Revenue expenditure + Capital expenditure

= ₹15,000 crores + ₹13,000 crores

= ₹28,000 crores

(c) Primary deficit = Fiscal deficit – Interest payments

₹5,000 crores = ₹12,000 crores – Interest payments

Interest payments = ₹12,000 crores – ₹5,000 crores

= ₹7,000 crores

The above-provided solutions are considered to be the best solution for ‘Sandeep Garg Macroeconomic Class 12 Solutions Chapter 10: Government Budget and the Economy. Stay tuned to BYJU’S to learn more.

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Government Budget and the Economy Case Study Questions for Class 12 Economics Chapter 4

• Last modified on: 2 months ago
• Reading Time: 11 Minutes

Table of Contents

Here you will find Case Study Questions for CBSE Class 12 Economics Chapter 4 Government Budget and the Economy.

Government Budget and the Economy Case Study Based Questions

Case Study Question 1:

Units and Chapter List:

PART A: INTRODUCTORY MACROECONOMICS

• National Income and Related Aggregates
• Money and Banking
• Determination of Income and Employment
• Government Budget and the Economy
• Balance of Payment

PART B: INDIAN ECONOMIC DEVELOPMENT

• Development Experience (1947-90) and Economic Reforms Since 1991
• Current Challenges Facing Indian Economy
• Development Experience of India

How to be a Well-prepared Examinee?

Getting prepared for the CBSE Examinations can be a challenging task, but with the right approach, you can be well-prepared. Every student wants to score well in the exams and be among the toppers. They all work hard to achieve this goal. The difference, between those who achieve the goal and those who do not, is not much. Here are a few points that will surely help in covering that difference and achieving the desired goal.

BE UPDATED First, get a clear understanding of the syllabus and the exam pattern of the CBSE Examinations. This will help you know which topics you need to focus on and what to expect in the exam.

DEVISE A STUDY PLAN Create a realistic study plan that covers all the subjects and topics that you need to study. Set realistic study goals for each day.

PRIORITISE THE TOPICS Identify the important topics and prioritise them in your study plan. This will help you focus on the most important concepts and reduce stress.

MAKE NOTES AND SUMMARIES Make concise notes and summaries of all the important topics. This will help you revise the concepts efficiently and effectively.

MNEMONICS Try to remember various concepts using the mnemonics

PRACTISE REGULARLY AND DILIGENTLY Solving previous years’ question papers and sample papers will help you assess your preparation level and identify your weak areas. It will also help you manage your time effectively during the exam.

STAY COMPOSED Try to keep calm and be in control of your feelings. Take a balanced diet, sleep well and do some physical exercise regularly. Spend some time doing the things which you like. Stay fit, calm and focused. It will help you immensely in your preparations and will lead you to success.

PREPARE FOR THE BIG DAY The examination day holds a great significance for the learners. Most of the learners try to assimilate as much as they can, just before the examination. This stressful, last minute preparation should be avoided, as much as possible. The preparation should end a night before the examination. A sound sleep is important for a fresh start in the morning. Avoid over-stressing just before the examination.

MINDSET DURING THE EXAM

In the examination hall, ensure that you have filled your particulars in the answer sheet correctly. Answer the questions according to the given directions. First attempt the questions that you can answer easily. It will create a positive mindset.

EFFECTIVE USE OF TIME

If you have solved the paper before time, don’t leave the examination hall. Revise your answers and look for any correction or improvement. There is always room for improvement. Do utilise your time effectively.

How to Tackle Business Studies Case Studies in Exams

Here’s a tip on how to approach and answer case study questions for Class 12 BST (Business Studies) exams:

1. Understand the Format:

• Case study questions are designed to test your ability to analyze and apply your knowledge to real-world situations.
• These questions are usually longer in length, but your answers should be concise and to the point.

2. Careful Reading:

• Begin by carefully reading the entire case study. Don’t rush; understand the context and details provided.
• Pay attention to any data, statistics, or specific information presented in the case.

3. Examine the Question:

• Before diving into the case study, read the question(s) associated with it. This will help you focus on what to look for while reading the case.
• Identify the key concepts or issues the question is addressing.

4. Highlight Key Information:

• While reading the case, underline or highlight important facts, figures, or statements that seem relevant to the question.
• Make notes if necessary to organize your thoughts.

5. Analyze the Situation:

• Once you have a good grasp of the case and its details, analyze the situation. Consider the cause-and-effect relationships, potential solutions, and any ethical or business principles involved.

6. Structure Your Answer:

• Start your answer with a brief introduction, summarizing the main problem or situation presented in the case.
• Organize your response logically. You can use bullet points or numbered lists for clarity.
• Present your analysis, providing relevant business theories or concepts as appropriate.
• Offer solutions or recommendations based on your analysis. Be clear and concise in your suggestions.

7. Use Simple Language:

• Write your answers in clear and simple language. Avoid unnecessary jargon or complex vocabulary.
• Ensure your answers are easy to understand for the examiner.

8. Practice with Sample Papers:

• Practice case study questions from sample papers and previous year papers to get a feel for the format and types of questions that may be asked.
• Writing practice answers will help you refine your approach.

Remember to practice, and you’ll become more proficient at tackling case study questions effectively.

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Government Budget and the Economy – CBSE Notes for Class 12 Macro Economics

Introduction

This is a descriptive chapter on government budget of Indian economy, wherein its objectives, importance, types, components, budget deficits and its types (Revenue, Fiscal, Primary Deficit) and their implications are studied. Chapter at a Glance

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Target Exam ---

Government Budget And Its Related Concepts

Components Of Government Budget, Budget Receipts Its Types

Types Of Taxes:

Budget Expenditure & Its Related Concepts

1. Meaning: Budget expenditure refers to the estimated expenditure of the government on its “development and non-development programmes or “plan and non-plan programmes during the fiscal year. 2. Types: (a) Plan and non-plan expenditure (b) Revenue and capital expenditure (c) Developmental and non-developmental Expenditure

(a) Plan and non-plan expenditure: (i) Plan Expenditure: Plan expenditure refers to that expenditure which is incurred by the government to fulfill its planned development programmes. This includes both consumption and investment expenditure by the government or Planning Commission of a country. Expenditure on agriculture, industry, public utilities, health and education etc. are examples of plan expenditure. (ii) Non-Plan Expenditure: This refers to all such government expenditures which are beyond the scope of its planned development programmes. For instance, no government can escape from its basic function of protecting the lives and properties of the people. For this government has to spend on police, judiciary, military etc. In short, expenditure other than expenditure related to current Five-year plan is treated as non-plan expenditure. (b) Revenue and capital expenditure: (i) Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. In revenue expenditure both the conditions should be satisfied. Examples of revenue expenditure are: salaries of government employees, interest : payment on loans taken by the government, pensions etc. (ii) Capital Expenditure: An expenditure that either create assets for the government [equity or shares) of the domestic, or multinational corporations purchased by the government), or cause reduction in liabilities of the government, [repayment of loans reduces liability of the government). In capital expenditure any one of the above conditions must be satisfied. Thus, it refers to expenditure that leads to creation of assets and reduction in liabilities. Such expenditure is incurred on long period development. Conclusion: A basic difference between capital expenditure and revenue expenditure is that the capital expenditure is incurred on creation or acquisition of assets, whereas, the revenue expenditure is incurred on rendering services. For example: Expenditure on construction of a hospital building is capital expenditure, but expenditure on medicines, salaries of doctors etc. for rendering services by the hospital is revenue expenditure. (c) Developmental and non-developmental Expenditure: (i) Developmental Expenditure: Developmental expenditure is the expenditure on activities which are directly related to economic and social development of the country. This includes expenditure on education, health, agriculture, transport, roads, rural development etc. This also includes loans given by the government to enterprises like Sahara for the purpose of development. (ii) Non-developmental Expenditure: Non-developmental expenditure of the government is the expenditure on the essential general services of the government. This includes expenditure on defence, payment of old age pension, collection of taxes, interest on loans, subsidies etc.

Deficits And Implications Of These Deficits

1. Budget deficit: (a) Meaning: (i) Budgetary deficit refers to the excess of total budgeted expenditure (both revenue expenditure and capital expenditure) over total budgetary receipts (both revenue receipt and capital receipt). (ii) In other words, when sum of revenue receipts and capital receipts fall short of the sum of revenue expenditure and capital expenditure, budgetary deficit is said to occur. Symbolically, Budgetary Deficit = Total Expenditure – Total Receipts (b) Types: (i) Revenue deficit, (ii) Fiscal deficit and (iii) Primary deficit 2. Revenue deficit: (a) Meaning: (i) Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. Symbolically, Revenue Deficit = Total Revenue Expenditure – Total Revenue Receipts (ii) The government of India budget for the year 2012-2013, total expenditure is Rs. 12,42,263 crore against total revenue receipts of Rs. 8,78,804 crore. As a result there is revenue deficit of Rs. 3,63,459 (12,42,263-8,78,804) crore, which is 3.6% of GDP. (b) Implications of revenue deficit: (i) Revenue deficit indicates dis-savings on government account because the government has to make up uncovered gap. (ii) Revenue deficit implies that the government has to cover this uncovered gap by drawing upon capital receipts either through borrowing or through sale of its assets. (iii) Since government is using capital receipts to generally meet consumption expenditure of the government, it leads to an inflationary situation in the economy. (c) Measures to reduce revenue deficit are: (i) Government should reduce its unproductive or unnecessary expenditure. (ii) Government should increase its receipts from various sources of tax and non-tax revenue. 3. Fiscal deficit: (a) Meaning: (i) Fiscal deficit is defined as excess of total expenditure over total receipts (revenue and capital receipts) excluding borrowing. In the form of an equation:

(ii) Fiscal deficit is a measure of total borrowings required by the government. (iii) Fiscal deficit indicates capacity of a country to borrow in relation to what it produces. In other words, it shows the extent of government dependence on borrowing to meet its budget expenditure. (iv) Another point to be noted here is that as the government borrowing increases, its liability in future to repay loan with interest also increases leading to a higher revenue deficit. Therefore, fiscal deficit should be as low as possible. (v) Fiscal deficit for the year 2012-2013 is 4,89,890 crore which is 4.9% of GDP. (b) Implications of fiscal deficit: (i) Causes Inflation: An important component of government borrowing includes borrowing from the Reserve Bank of India. This invariably implies deficit financing or meeting deficit requirements of the government by way of printing more currency. This is a dangerous practice, though very convenient for the government. It increases circulation of money and causes inflation. (ii) Increase in Foreign Dependence: Government also borrows from rest of the world. It increases our dependence on other countries. Foreign borrowing is often associated with economic and political interference by the lender countries. It increases our economic slavery. (iii) Financial Burden for Future Generation: Borrowing implies accumulation of financial burdens for the future generations. It is for future generations to repay loans as well as the mounting interest thereon. (iv) Deficits Multiply Borrowings: Payment of interest increases revenue expenditure of the government, causing an increase in its revenue deficit. Thus, a vicious circle is set wherein the government takes more loans to repay earlier loans, which is called Debt Trap. 4. Primary deficit: (a) Meaning: (i) Primary deficit is defined as fiscal deficit minus interest payments. Primary Deficit = Fiscal Deficit – Interest Payments (ii) The government of India budget for the year 2012-2013, fiscal deficit is 4,89,890 crore and Interest Payment is 3,11,996 crore. As a result, primary deficit is 1,77,894 crore, which is 1.8% of GDP. (b) Implications of primary deficit: While fiscal deficit shows borrowing requirement of the government for financing the expenditure inclusive of interest payments, primary deficit reflects the borrowing requirements of the government for meeting expenditures other than interest payments on earlier loans.

Words that Matter

1. Government Budget: A government budget is an annual financial statement showing itemwise estimates of expected revenue and anticipated expenditure during a fiscal year. 2. Balanced Budget: If the government revenue is just equal to the government expenditure made by the general government, then it is known as balanced budget. 3. Unbalanced budget: If the government expenditure is either more or less than a government receipts, the budget is known as Unbalanced budget. 4. Surplus Budget: If the revenue received by the general government is more in comparison to expenditure, it is known as surplus budget. 5. Deficit Budget: If the expenditure made by the general government is more than the revenue received, then it is known as deficit budget. 6. Budget receipt: It refers to the estimated receipts of the government from various sources during a fiscal year. 7. Budget expenditure: It refers to the estimated expenditure of the government on its “development and non-development programmes or “plan and non-plan programmes during the fiscal year. 8. Revenue Budget: Revenue Budget contains both types of the revenue receipts of the government, i.e., Tax revenue and Non tax revenue ; and the Revenue expenditure. 9. Revenue Receipts: Government receipts, which (a) Neither create any liabilities for the government; and (b) Nor cause any reduction in assets of the government, are called revenue receipts. 10. Tax Revenue: Tax revenue refers to receipts from all kinds of taxes such as income tax, corporate tax, excise duty etc. 11. Tax: A tax is a legally compulsory payment imposed by the government on income and profit of persons and companies without reference to any benefit. 12. Non-tax revenue: It refers to government revenue from all sources other than taxes called non-tax revenue. 13. Revenue Expenditure: An expenditure that (a) Neither creates any assets (b) nor causes any reduction of liability. 14. Capital Budget: Capital budget contains capital receipts and capital expenditure of the government. 15. Capital Receipts: Government receipts that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts. 16. Capital Expenditure: Government expenditure of the government which either creates physical or financial assets or reduction of its liability. 17. Direct Tax: When (a) liability to pay a tax (Impact of Tax), and (b) the burden of that tax (Incidence of tax), falls on the same person, it is termed as direct tax. 18. Indirect Tax: When (a) liability to pay a tax (Impact of tax) is on one person; and (b) the burden of that tax (Incidence of tax), falls on the other person, it is termed as indirect tax. 19. Progressive Tax: A tax the rate of which increases with the increase in income and decreases with the fall in income is called a progressive tax. 20. Proportional Taxation: A tax is called proportional when the rate of taxation remains constant as the income of the taxpayer increases. 21. Regressive Tax: In a regressive tax system, the rate of tax falls as the tax base increases. 22. Plan expenditure: It refers to that expenditure which is incurred by the government to fulfill its planned development programmes. 23. Non-Plan Expenditure: This refers to all such government expenditures which are beyond the scope of its planned development programmes. 24. Developmental Expenditure: Developmental expenditure is the expenditure on activities which are directly related to economic and social development of the country. 25. Non-developmental expenditure: Non-developmental expenditure of the government is the expenditure on the essential general services of the government. 26. Budgetary deficit: It refers to the excess of total budgeted expenditure (both revenue expenditure and capital expenditure) over total budgetary receipts (both revenue receipt and capital receipt). 27. Revenue Deficit: Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts. 28. Fiscal deficit: It is defined as excess of total expenditure over total receipts (revenue and capital receipts) excluding borrowing. Fiscal deficit indicates capacity of a country to borrow in relation to what it produces. In other words, it shows the extent of government dependence on borrowing to meet its budget expenditure. 29. Debt Trap: A vicious circle set wherein the government takes more loans to repay earlier loans, which is called Debt Trap. 30. Primary deficit: It is defined as fiscal deficit minus interest payments.

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Project on Government Budget and its Components – CBSE class 12

Table of Contents

INTRODUCTION

A government budget is an annual statement presenting the government’s proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president, and presented by the finance minister to the Nation. The budget is also known as the Annual financial statement of the country. This document estimates the anticipated government expenditures for the ensuing financial year. A project on government budget and its components can help children understand how their country works. For EXAMPLE – Property tax

The budget is the financial plan of the government for a definite period. A budget is a document containing a preliminary approved plan of public resources and expenditure. The government budget is an annual statement showing item-wise estimates of receipts and expenditures during a fiscal year.

IMPACT OF COVID-19 ON GOVERNMENT BUDGET

The government is likely to meet the budget targets for 2020-21 due to the covid-19 crisis but contraction in economic growth may not be as severe as being pointed out by the outside world, economic affairs secretary Tarun Bajaj said. He said the government regularly is monitoring 14-15 parameters which can give early signs of where the economy is heading. This includes E-way bills, power consumption, GST collection, etc. and every parameter is showing promising results, he said.

GRAPHICAL REPRESENTATION OF GDP

BUDGET AT A GLANCE

• The budget is prepared by the government at all levels, i.e., the central government prepares its respective annual budget.
• Estimates expenditures and receipts are planned as per the objectives of the government.
• The budget is presented in the parliament on such a day as the President may direct. By continuous it is presented before it can be implemented.
• It is required to be approved by the parliament.
• Reallocation of resources
• Economic stability
• Reducing inequalities in income and wealth
• Economic growth
• Management of public enterprises

OBJECTIVES OF GOVERNMENT BUDGET

• RELOCATION OF RESOURCES Through the budgetary policy, the government aims to reallocate resources to the economic and social priorities of the country. Tax concessions or subsidies. Directly producing goods and services.
• REDUCING INEQUALITIES IN INCOME AND WEALTH Economic inequality is an internet part of every economic system. The government aims to reduce such inequalities of income and wealth, through its budgetary policy. The government aims to influence the distribution of income by imposing taxes on the rich and spending more on the welfare of the poor.
• ECONOMIC STABILITY The government budget is used to prevent business fluctuation of inflation and deflation to achieve the objective of economic stability. Policies of the surplus budget during inflation and deficit budget during deflation help to maintain the stability of prices in the economy. There is a large number of public sector industries that are established and managed for the social welfare of the public. The budget is prepared with the objective of making various provisions for managing such enterprises.
• ECONOMIC GROWTH The growth rate of a country depends on the rate of savings and investments. For this purpose, the budgetary policy aims to mobilize sufficient resources for investment in the public sector. Therefore the government makes various provisions in the budget.

COMPONENTS OF BUDGET

Revenue budget.

• Revenue receipts
• Revenue expenditure

CAPITAL BUDGET

• Capital receipts
• Capital expenditure

Components of budget refer to the structure of the budget. Two main components of the budget are

REVENUE RECEIPTS It refers to those receipts that neither create any liability nor cause any reduction in the assets by the government. They are regular and recurring and the government receives them in its normal course of activities Revenue receipts satisfy these conditions

• The receipts must not create a liability for the government.
• The receipt must not cause a decrease in the assets of the government.

SOURCE OF REVENUE There are two types of revenue receipts of the government.

• Tax Revenue- refers to total receipts from taxes and duties imposed by the government. For example, Direct tax & Indirect tax is a compulsory payment, no one can refuse to pay them. Tax receipts are spent by the government for the common benefit of people in the country.
• Direct taxes are those which are imposed on property and the income of individuals and companies is paid directly by them to the government. They are imposed on individuals and companies.
• Indirect taxes refer to those taxes which affect the income and property of individuals and companies through their consumption expenditure.

HOW TO CLASSIFY A TAX AS DIRECT OR INDIRECT?

• A tax is a direct tax if its burden cannot be shifted. For example- income tax is a direct tax as its impact and incidence are on the same person.
• A tax is an indirect tax, if the actual burden of the tax lies on different persons, i.e. its burden can be shifted to the other.

ITEMS CATEGORISED( Gifts and Grants ) AS DIRECT OR INDIRECT TAX ?

• It is a direct tax as its impact and incidence lie on the same person. It is a direct line on the same person.
• Value-added tax is an indirect tax as it is imposed on the seller but beard by the customer.
• Services tax is an indirect tax as its impact and incidence lie on different people.

NON-TAX REVENUE It refers to receipts of the government from all sources there than those of tax receipts.

INTERNET Government receives interest on loans given by it to state government union territories FEES Fees refer to charges imposed by the government to cover the cost of recurring services provided by its conduct fees registration fees impact fees etc LICENSES FEES It is a payment charged by the government to grant permission of keeping a gun or commercial vehicle. FINES AND PENALTIES They refer to those payments that are imposed on lawbreakers, fines for jumping lights, etc. ESCHEATS It refers to claims of government on the property of a person who dies without leaving a will GIFTS AND GRANTS Government receives gifts and grants from the foreign government. FORFEITURES These are in the form of penalties that are imposed by the court for non-compliance with other contracts, etc

REVENUE EXPENDITURE

Revenue expenditure refers to the expenditure that neither creates any liability nor causes a reduction, in any liability of the government. It is recurring in nature. It is incurred on the normal functioning of the government. The expenditure must not create an asset of the government payment of salaries or pension is revenue expenditure as it does not create any asset. Metro is not a revenue expenditure as it leads to the creation of an asset for the government.

The main two components of the capital budget are

CAPITAL RECEIPTS

Those receipts which are either create liability or cause a reduction in the assets of the government. They are non-recurring and non-routine. The receipts must create a liability for the government. Borrowings are capital receipts as they lead to an increase in the liability of the govt.

However, the tax received is not a capital receipt as it does not result in the creation of any liability. The receipts must cause a decrease in the assets, receipts from the scale of share of public enterprises is a capital receipt as it leads to a reduction in assets of the government.

Capital receipts are of three types

BORROWINGS They are the funds raised by the government to meet expenses.

• Government open market
• Reserve bank in India
• Foreign government

RECOVERY OF LOANS Government grants various loans to the state government or union government.

OTHER RECEIPTS These include disinvestment and small savings. Disinvestment refers to the act of selling a part of the whole of shares of selected public sector undertaking held by the government small savings refer to funds raised from the public in the form of post office deposits.

CAPITAL EXPENDITURE

It refers to the expenditure that either creates an asset or reduces any liability of the government. It is non-recurring It adds to the capital stock of the economy and increases its productivity through expenditure.

For example loan to states and union territories is an expenditure on building roads, flyovers, etc. the expenditure must create an asset for the government. As construction of the metro is a capital expenditure as it leads to the creation of assets. However, any amount paid as salaries is not capital in the assets.

BUDGETARY DEFICIT

A budgetary deficit is defined as the excess of total estimated expenditure and our total estimated revenue when the government spends more time it collects than it incurs a budgetary deficit concerning the budget of the Indian government.

• Revenue Deficit
• Fiscal Deficit
• Primary Deficit

R EVENUE DEFICIT

Revenue deficit is concerned with the revenue expenditure and revenue receipts of the government. It refers to an excess revenue expenditure of revenue receipts.

IMPLICATIONS

• It indicates the inability of the government to meet its regular and recurring expenditures in the proposed budget.
• It implies that the government is dissolving, i.e., the government is using up saving from other sectors of the economy to finance its expenditure.

FISCAL DEFICIT

The fiscal deficit presents a more comprehensive view of budgetary imbalances. It is widely used as a budgetary development in India. The extent of the fiscal deficit is an indication hour for gout is spent.

IMPLICATIONS The fiscal deficit indicates the total borrowings requirements of the government.

SOURCES Borrowings It can be met by borrowings from internal or external sources.

PLAN AND NON-PLAN EXPENDITURE

Planned expenditure refers to the expenditure that is incurred for the programs detailed in the current five-year plan. Non-planned expenditure refers to the expenditure other than the expenditure related to the current five-year plan. Plan expenditure is spent on current development and investment outlays non-plan expenditure is spent on the liability of the government. Non-planned expenditure arises only when the plans provide such expenditure.

DEVELOPMENT AND NON-DEVELOPMENTAL

Developmental expenditure refers to the expenditure which is directly related to the economic and social development of the country. Expenditure on such services is not a part of the essential functioning of the government. non-developmental expenditure refers to the expenditure which is incurred on the essential goods and services of the government.

It does not directly contribute to the economic development , but it directly helps in the development of the economy such expenditure is essential from the administration’s view.

MY OPINION ON THE TOPIC

After listening to a long 2 hours speech by the finance minister, I had some equally frustrating and fascinating thoughts moving beyond the usual debate of will this is good economics or bad politics?

The two can co-exist. As a whole, the budget needs to move away from populist and prudent definitions. It needs to be examined on the merit of what it does to different classes of people. It had a huger impact and I had to take a bit of time to properly digest what I heard.

BIBLIOGRAPHY   

• Friends/family
• http://www.hhcpa.com/blogs/non-profit-accounting-services-a-look-into-the-importance-of-budges
• https://en.wikipedia.org/wiki/Union_budget_of_India
• http://www.theunreal.times.com/2015/02/27/budget-criticism101/-the-10-most-common-ways.

ACKNOWLEDGEMENT

Many people helped me through their successful completion of the project. First of all, I thank the Almighty God for his goodness and mercy in giving me the strength to complete this project on government budget and its components for class 12. I hereby express my abundant and sincere gratitude to Dr. Karabai Das, department of economics, Royal Global school, for her valuable guidance, constant encouragement, and creative suggestions rendered during this project.

I thank our principal Mrs. Anubha Goyal for providing me with all facilities and also for the constant inspiration and encouragement for the successful competition of this project. I offer my deepest gratitude to my family members whose prayers and blessings guided me in the successful completion of this project. I also owe my gratitude to my classmates whose support was inevitable for the completion of the project.

CERTIFICATE for economics project class 12 cbse

This is to certify that xxx of grade Xl-B roll no. 17 of ROYAL GLOBAL SCHOOL has completed the project on the Government budget and its components for class 12 under my supervision and has submitted the project in practical requirement. Under economics examination 2020-21. The concepts and ideas are original and the project is a bonafide piece of work carried out by her under my supervision.

Dr . xxx                                                                                                  sign of External

Dept . of Economics

ROYAL GLOBAL SCHOOL

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Government Budget and Economy Class 12 Economics Important Questions

Students can read the important questions given below for Government Budget and Economy Class 12 Economics. All Government Budget and Economy Class 12 Notes and questions with solutions have been prepared based on the latest syllabus and examination guidelines issued by CBSE, NCERT and KVS. You should read all notes provided by us and Class 12 Economics Important Questions provided for all chapters to get better marks in examinations. Economics Question Bank Class 12 is available on our website for free download in PDF.

Important Questions of Government Budget and Economy Class 12

Question. What is Govt. Budget? Ans : The term budget has been derived from the French word ‘Bougett’ which refers to ‘a small bag’. A govt. budget is an annual statement of estimated receipts & expenditure of the govt. during a financial year. Question. Explain the objectives of Govt. Budget. Ans : The govt. prepares budget with the following objectives: 1. Proper Allocation/Reallocation of resources is one of the important objectives of govt. budget. The govt. makes a proper allocation of resources through its budgetary policy so as to make a balance between the goals of profit maximization & social welfare. In other words, there is a justifiable allocation of resources which can promote the welfare of the common mass. 2. Economic Stability is another objective of budgetary policy of the govt. During the period of depression & inflation, govt. adopts the policy of deficit & surplus budgeting respectively. The govt. adopts certain policies through budget to save the economy from the clutches of business cycles. The economic stability is indispensable for the stimulation of savings & investment which further raises the level of economic growth & development. 3. Economic Growth is one of the important objectives of the govt. budget. Government prepares such a favorable budget which can create conducive  onditions to raise the level of savings & investment on which the economic growth of a country depends. 4. Economic Equality is another important objective of govt. budget as economic disparity is inherent in any economic system which is politically &bsocially   undesirable for a healthy nation. In order to curb the economic inequality to a socially acceptable level, fiscal policy play as an effective instrument through which the govt. exercise, with the help of taxation & expenditure, in redistribution of income & wealth in the economy. This helps to bring social & economic justice which is an important element of any welfare state. 

Question. Define the term Deficit Financing & state its sources. Ans :  It refers to the financing of the budgetary deficits. The sources are expansion in money supply, i.e. the Central Bank may print money equal to the deficit against of treasury bills of the govt., & secondly by borrowing from the public through market loans. It is a very common instrument to finance the deficit if the govt. budget. Usually it is used by the govt. in India, as every year the budgetary deficit is on rise. The deficit financing can be also done by borrowing from the abroad, which may be burdensome in the future. It is used as the best alternative in the less developed countries because in these countries the people cannot be highly taxed.

Question. There has been constant rise in price of sugar overtime. What measure would you support to bring down the prices? Ans.  Using measures of budgetary policy, government can try to fix prices at a lower level by incurring expenditure through subsides which would reduce cost of production and hence the prices. If the government does not want to add to its expenditure on subsidies, then it should ensure availability of sugar at reasonable prices through its fair price shops. In the situations of emergency, buffer stocks may also be used.

Question. How can government budget be a useful instrument in reducing inequalities in the distribution of income and wealth? Ans.  Government uses budgetary policies to reduce inequalities in the distribution of income and wealth by: i). Imposing new taxes and increasing the rates of existence taxes; ii) Spending more on education, health care and housing for the poor; iii) Strengthening public distribution system(through fair price shops)

Question. What is the relationship between the revenue deficit and the fiscal deficit? Ans.  Fiscal deficit is a wider concept than revenue deficit. Revenue deficit is defined as the excess of government’s revenue expenditure over revenue receipt. Thus, Revenue deficit=Revenue expenditure (RE)-Revenue receipt(RR). Where as fiscal deficit is defined as the excess of total expenditure over total receipts excluding borrowings. It does not take into account borrowings. Fiscal deficit= (total budgetary expenditure)-(total budgetary receiptborrowings)

Question. Explain the sources of Public Expenditure. Ans : This refers to the expenditure to be incurred on various heads during the fiscal year. Public Expenditure is been classified into Plan & Non-Plan  xpenditure since 1987-88 budget which are further classified into Revenue & Capital Expenditure. Further this Plan revenue & capital, and Non- Plan revenue & capital expenditure are classified into Developmental & Non-Developmental Expenditure. This can be understood by the help of the above flow chart. Plan expenditure refers to the amount to be spent on the heads which are prescribed under the current five year plan. Thus it shows the central plan outlay for various projects, programmes schemes & the central assistance for the state & union territories. Plan Revenue expenditure includes the expenditure on central plans viz. agriculture, rural development, irrigation & flood control, energy, industry & minerals, transport, communication, science & technology, environment & others, and the central assistance for state and union territories. Plan Capital Expenditure includes the expenditure on economic development, social & communal development, defence & general services etc., and loans to states and union territories for financing plan projects. Non-Plan expenditure includes the expenditure on the items which are not included in the current five year plan but are included in the current fiscal year budget. Non-Plan Revenue Expenditure includes interest payments; defence revenue expenditure; subsidies in food, sugar, export promotion, market development, interest subsidy etc; grants to states and UTs; pensions and economic services, social services, general services; postal deficit; grants to foreign govt. & others. Non- Plan Capital Expenditure includes defence capital; loans to states, UTs & foreign govts. Revenue expenditure includes the expenditure on those heads which do not create any assets or reduce the liabilities. These expenditures are incurred on the normal functioning of the govt. and the maintenance of the law & order. For example, compensation of employees, pensions, interest payments, subsidies, grants expenditure on central plans etc. Capital expenditure refers to the amount to be spent on those heads which leads to the creation of the assets or reduction in liabilities. For example, expenditure on defence capital; purchase of assets viz. land, buildings & shares; loans to state govt. & union territories etc. Developmental expenditure refers to the expenditure on those items which are directly related to economic and social development of the economy. For  xample, expenditure on capital assets, infrastructure, railways, posts, telecommunication, education, health, social welfare, scientific research etc. This  xpenditure directly contributes to the flow of goods and services. Non-Developmental expenditure includes the expenditure on those heads which are not productive & give any returns to the economy viz. defence &  dministrations, natural calamity, interest payments, tax collections, old age pensions & unemployed allowances etc. Although, it does not contribute to the national income but it is not to be considered as unimportant as it lubricates the wheels of economic development i.e. it creates the conducive conditions in the functioning of the process of economic development.

Question. Explain different types of Budget. Ans : Govt. budget can be classified into Balanced, Surplus & Deficit Budget. Balanced budget refers to the budget when the public receipts are equal to the public expenditure. Surplus budget is the one in which public receipts exceeds the public expenditure. Deficit budget is the one in which the govt. expenditure exceeds its receipts.

Question. Explain different types of budgetary deficit. Ans : The budgetary deficit is classified into Revenue, Fiscal & Primary deficit. Revenue deficit refers to the excess of revenue expenditure over revenue receipts. It is the difference between the (Plan revenue expenditure and Non-Plan revenue expenditure) and (Tax revenue + Non-tax revenue). Fiscal deficit refers to the excess of total expenditure over the sum of revenue receipts and capital receipts excluding borrowings. Thus, Fiscal Deficit =total Expenditure – Total Receipts (net of Borrowings).Primary deficit is defined as fiscal deficit less interest payments. Thus, Primary Deficit = Fiscal Deficit – Interest Payments.

Question. What is capital budget? Ans.  Capital budget contains the details of the capital receipts and capital expenditure of the government.

Question. What is tax? Ans.  A tax is a compulsory payment imposed by the government on public or firms.

Question. Define a direct tax. Give two example of direct tax? Ans.  When liability to pay a tax and the burden of that tax lies on the same person, it is called direct tax. e.g., income tax and corporate tax.

Question. Define indirect tax. Give two examples of indirect taxes? Ans.  When liability to pay a tax is on one person and the burden of the tax falls on same other person, it is called indirect tax e.g., sales tax and excise duties.

Question. Find borrowing by Government if payments of interest is estimated to be of 15,000 crores which is 25% of primary deficit. Ans.  Here, Interest payment = 25% of primary deficit; Primary deficit = 100/25 x 15,000 = 60,000 We know, Primary deficit – Interest payment; Fiscal deficit = Primary deficit + Interest payment = 60,000 crore + 15,000 crore; = 75,000 crore Question. What is revenue budget? Ans.  Revenue budget contains the details of the current receipts (or called revenue receipts) and current expenditure (also known as revenue expenditure) of the government.

Question. Give example of non-tax revenue receipts? Ans.  Fees, License and Permit, special assessment, escheat etc.

Question. What does zero primary deficit mean? Ans.  Zero primary deficit means that the government has to resort to borrowings only to make interest payments of previous years.

Question. Are fiscal deficits necessarily inflationary? Ans.  Fiscal deficits are not necessarily inflationary. However, if output is less because of lack of demand and high fiscal deficit is accompanied by higher demand and greater output and therefore if would not be inflationary as it is covering the gap required for smooth functioning of the economy by raising the level of aggregate demand.

Question. There carefully planned, government budget reflects deficit because its expenditure exceeds revenue. How can this deficit be reduced? Ans.  Government should increase its revenue by controlling tax evasion; ii. Government should reduce unproductive expenditure like subsidies, financial assistance to all even when some of them may not require it.

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